Mike Krieger Explains Why Fiat Money is Immoral

The people must be helped to think naturally about money. They must be told what it is, and what makes it money, and what are the possible tricks of the present system which put nations and peoples under control of the few.

- Henry Ford

U.S. investors should welcome, not fear, climbing commodity prices. The increases are "largely a reflection of the fact that the pace of economic growth, particularly in the U.S., has picked up," said Nariman Behravesh, chief economist at consultants IHS in Lexington, Massachusetts, and a former Federal Reserve official who has been covering the global economy for more than 35 years. "It's not something to be worried about."

- Bloomberg article from yesterday

Why Fiat Money is Immoral

Today’s email is going to be a little different. A couple of weeks ago a friend of mine from NYC who is not in the business but is on my weekly email distribution list asked me to explain fiat money and why I think it is the wrong way to go. Below I am going to paste my response to her. There is so much disinformation out there about money it is scary. Sadly, the strategist at my former employer added to this several weeks ago. He wrote: “Gold, which is effectively just another fiat currency.”

Clearly he failed to look up the definition of fiat currency.

Fiat money is money that has value only because of government regulation or law.

Definition of Fiat: An authoritative or often arbitrary official order or decree. THIS DOES NOT EXIST TO GOLD AS MONEY TODAY AT ALL.

Gold is not money under “fiat” in any country at the moment. Rather the market is making gold as money today which is the OPPOSITE of fiat money.

With that off my chest, here is the response to my friend…

Ok, so let’s do a brief thought exercise on why I believe commodity money is preferable to fiat money. When you have fiat money, a government, or in the case of the United States today, a banking cartel (the Federal Reserve), is granted exclusive authority to create the nation’s money. Laws are used to enforce the use of this money otherwise people probably wouldn’t use it. Under a commodity money system, where let’s say the U.S. issues dollars but those dollars are backed or convertible to a commodity (in many cases gold but it can be other things) there is a limit to the amount the government or banking cartel can print or issue and this is in relation to the amount of the commodity that exists or is available to the government or central bank. The current propaganda that is rife throughout economics textbooks and the like tell is the notion that commodity money is bad since it stifles human innovation in relation to the amount of gold or whatever commodity used. They say this is bad and that there should be no “limit” on money creation based on something as arbitrary as a commodity and that this is bad for growth. This is complete nonsense and is used to keep people in the current fiat system where money power is exercised most egregiously by the few against the many. The reason they defend the current system is simple. With the power to create unlimited currency at will (via the Federal Reserve) you possess total and absolute power over almost EVERYTHING in the economy and society at large. The Fed not only creates the money but they distribute it where they want. In QE1 and QE2 they decided to buy specific assets. In the case of QE1 where they bought toxic assets, this was just another bailout of the banks and others that made poor investment decisions. Did the money go to build new schools? No. Did the money go to build high speed trains as is done in China? No. Did it go to building out massive alternative energy infrastructure? No. It went to save the banks because at the end of the day the Fed exists as a backstop to the banks and it is to the banks that the Fed answers to at the end of the day. It is a brilliant scam that 95% of Americans do not comprehend. So in this case all of the money is going to the banks (which destroyed the global economy in the first place) and other players in the financial world. Remember, the banks ARE the Fed and the Fed creates the money. Gate keepers at the Federal Reserve and academia make understanding economics, the Fed and money seem so “complex” but the scam is really VERY simple.

I am not saying that I necessarily back the classic gold standard but it is much more of a moral and genuine capitalistic system than what we have today. One of the arguments against the gold standard is that the rich have all the gold anyway and they will still have the power. Ok, well let’s suppose this is true. Under a gold standard they would need to mobilize this gold to exercise their power and influence and pay people off to do their bidding. This has a real cost to them. Gold will be spent. At some point they will choose not to spend it on this or that and ultimately they will lose their power/money by spending too much gold. They can’t just create more out of thin air to exercise unlimited money power on the populace.

This is in complete contrast to how things work today. With the dollar they can create more and more everyday and buy people off without ANY cost in the short term (until the dollar itself collapses). This is why the most dangerous thing that can happen would be a global fiat currency to replace the U.S. dollar. They could start over in their never ending system of money power with a new currency that can be printed at will and used to buy up the world and all its resources at no cost to them. The end result would be slavery for the masses of humanity. The global monetary system as it stands is one of the most immoral social structures ever created by man. Most of us in America do not understand this since we have been the beneficiaries of it up until now. We are like the feudal lords in pre-revolutionary that couldn’t see the world beyond their favored social status until they lost their heads. The system as it stands has led extreme exploitation and corruption, not true capitalism. If we continue on this path the next stop is a feudalistic fascism.

In a Fiat System Banks Must be Like Utilities

At the Sanford Bernstein conference several years ago Joseph Stiglitz spoke and said a good and healthy financial system is a small financial system. I couldn’t agree more. This is especially the case in a purely fiat money system. Money is too important to allow greedy children in expensive suits on Wall Street and dangerous academics at the Fed to play around with. I do not claim to know what the ideal money system is but I want to be very clear on this point. If we have a fiat system like today the banks should be the most regulated industry on the planet and operate like utilities. They are supposed to help the productive economy innovate and create wealth. They are not supposed to be parasites that suck the lifeblood out of the real economy and compose 16% of the weight in the S&P500 (only technology is bigger at 17%). Something is VERY, VERY wrong here.

I placed the quote at the top of the email to demonstrate just how entirely disconnected the corrupt elite class is in the United States is today from the average citizen. Many historians assert that Marie Antoinette never said “let them eat cake,” but surely she made comments similar to those at the top of this email from the Bloomberg article. What is happening now is nothing new. It has happened over and over again for millennium. The elites of every era always think they will stay in control no matter what. They will be wrong once again.

'Immoral'? Well what does THAT matter, long as stocks go up! Fabric of the nation destroyed, countless businesses and families destroyed...WHATEVER who cares! Stock congo line starts to the right behind Harry and RainbowTrader!

"A little parable may prove useful: Today an ounce of gold sells for $300, more or less. Now suppose that a modern alchemist solves his subject's oldest problem by finding a way to produce unlimited amounts of new gold at essentially no cost. Moreover, his invention is widely publicized and scientifically verified, and he announces his intention to begin massive production of gold within days. What would happen to the price of gold? Presumably, the potentially unlimited supply of cheap gold would cause the market price of gold to plummet. Indeed, if the market for gold is to any degree efficient, the price of gold would collapse immediately after the announcement of the invention, before the alchemist had produced and marketed a single ounce of yellow metal.

What has this got to do with monetary policy? Like gold, U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation.

Of course, the U.S. government is not going to print money and distribute it willy-nilly..."

If it was possible to produce as much gold as anyone wanted at no cost, then wouldnt gold become worth nothing? Hmmm and basically its what Bernank is already doing, creating as much money as he feels like for nothing, making it worthless.

According to him it's all about staving off the dreaded deflation. He believes that there will never ever be deflation again - just induce spending through the printing press - problem solved by forced inflation - at any cost. All it takes is a 'determined government' (i.e., him). It's his religion.

All that is needed is to link currency to gold and maintain its value through currency supply. It is not necessary to back it with gold or have it convertible to gold. If it has the same value why would you convert it? It would be like exchanging 5 nickels for a quarter. It is not necessary for gold to be hoarded or stored, though some could be held to make people feel better.

The problem now is to determine the proper price to link the dollar to gold so creditors and debtors are in balance. Even if there is error it would be far better than the current system of fiat currency linked solely to Bernanke's feeble mind.

I doubt it Canada has a serious peacenik attitude and some draconian gun laws. Michigan, on the other hand put 700,000 rifle-armed citizens in the feild last deer season, and aside from the Detroit area is also loaded with foor and natural resources (heck, we even have a small oil field of our own).

The money supply must correspond to the growth rate of individuals.. That is not possible in the current world which is why the Gold Standard will never happen again.

Actually if you think about it... You have two side of the coin. One side is the Gold Standard which is ideal for creating future generations that provide zero productive capacity, but own all of the wealth. On the other side you have a Fiat currency which will always end in implosion because it is too temping to play with the money supply... In the future, hopefully there will be a middle ground found.

The money supply must correspond to the growth rate of individuals.. That is not possible in the current world which is why the Gold Standard will never happen again.

Not true. Prices and exchange rates can fluctuate to accommodate an increase or decrease in population and/or gold. A gold standard protects and preserves wealth for present as well as future generations.

Aristotle's five characteristics of money - durable, portable, divisible, intrinsic value. Gold IS money, regardless of how many people use it.

Herein lies the challenge, and the opportunity.To find a way to have the beneficial effects of fiat currency, while eliminating the risk.

Recommend reading Ragnarok's link to FOFOA above. Also worth studying is Silvio Gesell's 'Natural Economic Order' and concept of 'Freigeld' (free money), along with the instances where this has been tried successfully (eg, "the Miracle of Worgl", Austria in Great Depression) until shut down by the C-Bster money elite (and ask yourself WHY the banksters always shut this down).

"The money supply must correspond to the growth rate of individuals..."

There is a way to achieve this. Decentralise central banking. How? Developing alternate / Complementary Currencies, that work better, and thus over time can outcompete the (likely collapsing) existing currency system/s.

As food for thought, see by way of less-than-perfect example The Ripple Project:

Think about what is possible through (eg) peer-to-peer technology, and encrypted systems. Is it not possible to develop a system where every individual effectively becomes their own Central Banker, creating their own "demurrage" currency credits, subject to pre-programmed cap limitations?

If We The People do not employ our creative genius to develop something better, from the grass roots, then I fear we will forever remain enslaved to 'money' (and those claiming the exclusive 'right' to issue currency) ... rather than money being a slave to us.

"Under a commodity money system, where let’s say the U.S. issues dollars but those dollars are backed or convertible to a commodity"

"backed by" won't change the existing system - the central bankers will still retain the power to control and manipulate the monetary system and everything in it

the only way to change the system is to have a fully convertible currency or use a valuable tangible good as the circulating currency

it is the people's CHOICE TO HOLD OR CONVERT the currency that limits the bankers' control - when the bankers get out of hand the people convert the circulating currency into the tangible good thus removing the bankers' power

look no further than the Euro for a currency that is 'backed by' gold (15% at its inception) - the 15% backing was just a marketing gimic to help people accept a new, purely fiat currency

If it is the people's "CHOICE TO HOLD OR CONVERT" a currency, then they must not be allowed to carry it over to the next generation. I agree 100% that those who earned the wealthy (creating productive capacity) should be in complete control of the wealth they made. However, passing that wealth to a future generation that potentially does not have the capacity to produce productive capacity should not be allowed...

In short... Freedom to succeed at its core is giving people a fair chance at demonstrating their abilities. When you transfer wealth from one generation to another errespective of abilities, then you infringe of the future generations potential to demonstrate their abilities...

In such a system, if those inheriting can't make it, they'll loose it. Further, you envious twit, what business is it of yours what someone does with their money. The only response to the sort of theft you have in mind is to piss it away before one dies. That'll do a lot for capital formation.

I can't even believe someone so clearly mentally and morally deficient as your statement shows you are has the capacity to type.

Freedom of opportunity, not freedom of outcome. As families acrue wealth through whatever means, and as the generations pass either those skills that earned the wealth in the first place will be passed down and the wealth will be used to create new wealth (i.e. business and jobs) that, if run successfully will succeed. If subsequent generations do not have those same or similar skillsets, the wealth will be squandered, and not available for subsequent generations who will then have a very different experiance and be motivated to re-gain through taking risks, working hard, innovating etc.

The only time this doesn't work is when the system of risk/reward breaks down and more wealth = access to markets or opportunities where you cannot place a losing bet, only winners. That's where we find ourselves now - The initial climb to wealth is just fine, but that wealth is used to purchase political power to protect and grow it rather than through entrepenurial risk/reward type actions.

We should strive for success and applaud those who achieve it. We should fight moneypower corruption wherever we find it. As the old gypsy curse goes, "May you live in interesting times!"

Personally I think a return to the gold standard is a really bad idea. Follow the yellow brick road. Who has all the gold? Banksters. What we need is to abolish the Fed. The Romans had it figured out back in the day - more money, liquid money, and no gold standard. I watched the Wizard of Oz and I know what it means.

One of the arguments against the gold standard is that the rich have all the gold anyway and they will still have the power. Ok, well let’s suppose this is true. Under a gold standard they would need to mobilize this gold to exercise their power and influence and pay people off to do their bidding. This has a real cost to them. Gold will be spent. At some point they will choose not to spend it on this or that and ultimately they will lose their power/money by spending too much gold. They can’t just create more out of thin air to exercise unlimited money power on the populace.

TThe issue to me would be the quantity and velocity of gold-backed money on a gold standard would not be sufficient in my opinion for modern commerce. Those are all details to be worked out later however. We can all agree the current system is bonkers.

You don't eat gold. The supply is quite sufficient as it is just another commodity. It has no fixed value. An ounce of gold is exchanged for whatever the two making the trade decide. If that happens to be a 747/ounce, then so be it. It matters not. Other "inferior" commodities and metals always pick up the slack. Just get the government out of the money business. People will make their own choices. Might not even be gold...

"Under a gold standard they would need to mobilize this gold to exercise their power and influence and pay people off to do their bidding. "

The inherent flaw in this argument stands out like dogs balls. The author wrongly ass-umes that spending (ie, losing physical possession / control of) their gold is the (only) way to make their control over large quantities of it (via direct possession, and/or ownership/control of mining) work in their favour.

Wrong.

Why do you think Lincoln and JFK were shot?

There is more than one way to use gold to acquire control over a nation. Spending it is only one of many ways to achieve that.

Does the author really believe these people are that one-dimensional in their thinking?!

So banks "are supposed to help the productive economy innovate and create wealth." Wow - all these years, didn't know that. What are chemical companies suppose to do? How about real estate companies?

We're going to need a bunch more smart central planners.

How about just eliminating government guarantees of deposits or increase bank equity capital requirements to say 50% (more in line with other non-bank companies) and give them more freedom to decide what they're "supposed to do?"

Something is VERY, VERY wrong here. Yes, something is wrong & it's been wrong for a long time now ! I try to tell my adult children that things were never like this when I was a kid (1950's) !! This past century was a total wealth transfer / the century of inflation. TPTB are done, they have brought it on themselves.

Relax, will ya? China's got this! They are now "number 1" and as can bee seen by the major ass kissing by Teleprompter IN Chief, we're lucky if we're number 30 on the list. Sotake that to the bank and let's rally the stocks!

Mike you F'ing moron! Didn't you get the F'ing memo? The F'ing Fed CAN'T be F'ing insolvent, ever! And all the F'ing problems in the EU are F'ing solved. Poof. Like that. Which makes all the F'ing gold and silver in the world, F'ing worthless. All that matters, is not what people think of you or your standing with God or how you treat a fellow human, just simply money. And make that the now forever valuable Fiat Money!

-1. It makes a helluva lot of difference. Any commodity-based system can be taken over by those willing and able to do so, by fraud, violence, etc. "Might is Right". Look at how the money powers have gained control over individual nations in millennia past - by issuing a competing currency* to that of the sovereign, by minting the gold/silver whatever that they have already acquired control over (in large quantity) elsewhere. The issue with commodity-based systems is and always will be, WHO controls the supply.

*Hence, the way to beat them is to take a leaf out of their own playbook. Design and issue a currency that works better, for more people, from the grassroots. If they can issue currency that is merely a token (digital entry), then there's no reason why We The People cannot do the same ... but without the usury component.

Sound money requires a clearinghouse capability to keep it honest. Without a specie exchange component, money will always be inflated. You can dicker over the asset, but without the ability to clear in real assets- all money systems fail.

Grass roots are for suckers. The people are a herd. The development of regulation is always a cover to fleece. Only by keeping a system in it's simplest terms can value be protected.

All currency should be valued in grams @.999 purity. All currency should float. No currency can be legal tender. The market can decide.

If we have a fiat system like today the banks should be the most regulated industry on the planet and operate like utilities. They are supposed to help the productive economy innovate and create wealth.

Mike, with this much power, with the ability to create money out of thin air, to provide an iinfinite supply of dollars, so that insolvency is impossible, is tantamount to the Fed being God.

Only God can create something out of nothing.

So, if the Fed is going to play God, it is going need to be regulated, to protect it from itself.

Everyone is ignoring the (almost) hidden final point: the public utility model of banking. If bankers succeed in pissing off too many proles, they will get the utility treatment. If you are too big to fail, then you are too big to be allowed to run willy nilly and unregulated. Pick one.

you need a central bank controlled by computers , not people. oh and some clever people to make up the alogorithms. and prob people smarter and less greedy than we have available to do it. then let it run the show, and make sure to have no back doors.

Commodity based money isn't really a "system"; it is the absence of a system, or at least a human designed one. All a gold standard is, is defining the unit of account, e.g., the dollar, in gold terms. That's all it is. You abolish the central bank at that point becuase you don't need it anymore. If the Treasury wants to issue notes it can. If private banks want to issue bearer notes they can. The point is, to make promises of "dollars" when you don't have the gold to back them up would be fraud. Criminal fraud.

not even the root of the problem. if lent into the system, there's never enough currency in circulation (heavens gold itself or freshly painted tungsten) equal the amount owed + interest. the tendency towards fractional reserve begins by the very nature of necessity to catch that which is uncatchable.

then after, we can discuss endorsing a system backed by the "full integrity" of the electronic commodity exchanges & whether that makes any fricken "moral" sense at all....

China and the U.S. and EU are all con-artists in the same hustle of fiat. Do you think China and the U.S. are actually going to battle over anything? China buying bonds of NATO countries is about their leverage in their own scam. They have everyone by the balls but their own country is on the precipice as well. It's very much like the U.S. Govt., Fed, Banksters, Military Industrial Complex/Police/National Security, and Kleptocratic Corporatists all implicit in the same game and nobody able to leave the boat without it capsizing from the loss of their bloated carcass.

When the answer to global insolvency is printing more fiat it is acknowledging default to their ponzi.

It is eternally amazing to me how people who "get it" (know they're being scammed) just can't put their finger on the fundamentals. I'll mention a couple here, but some of my (months) older posts go into much more detail.

fundamental #1: Honest, ethical people produce goods; real, physical goods that other humans value in and of themself (meaning, not numeric digits on a piece of paper). This is what distinguishes "civilized" human behavior (produce what you consume) versus "uncivilized" (predatory) human behavior (take or defraud what you consume).

fundamental #2: In any exchange of goods, honesty and ethics demands there be no break in the "value chain". The goods you trade have "value" because they benefit others, and therefore others need or want those goods. The goods you trade for have "value" because those goods benefit you, and you need or want those goods. An honest, ethical transaction is one in which you trade the value (goods) you produced for the value (goods) someone else produced. Nobody is ever left holding something that has no value in and of itself.

Therefore, to exchange goods you produced for gold, or silver, or copper, or lumber, or ceramic tiles... leaves both producers holding goods that have value, and in fact, goods with value approximately equal to what they held before the exchange. Neither producer was ever in a position of being "at risk" or "scammed" (assuming they were not defrauded about the quantity or quality of the goods exchanged). There was never any break in the "value chain", because both traders held valuable goods at every moment.

However, if a producer exchanges his real, physical, valuable goods for pieces of paper, which have zero value in and of themselves, they have entered into an exchange that leaves them at extreme risk, especially today when "fraud is obsolete" (not enforced), "rule of law" is gone, and "color of law" exists only as a means for fiat-pushers to abuse honest, ethical, "small fry".

fundamental #3: A "gold standard" does NOT mandate that anyone exchange their goods for gold. No way, no how, and any claims to the contrary are blatant lies and propaganda. The gold standard only provides a most convenient "standard" to compare the value of goods, and thereby determine "fair, reasonable, conventional" exchange rates for arbitrary pairs of goods. You can exchange "eggs" for "lumber" under a gold standard almost as easily as "eggs" for "gold" or vice versa. You simply refer to the exchange rate of "eggs versus gold" and the exchange rate of "lumber versus gold" --- then divide to find the exchange rate of "eggs versus lumber". NOBODY is required to "accept gold" or "pay with gold" or "save gold" or any such blatant nonsense. True, exchanging your goods for gold... then later exchanging your gold for goods is quite convenient, and makes "saving in gold" the easiest (but rarely the most lucrative) form of saving. But that's all personal choice.

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The fact is, fiat currency is overt and inherent fraud. One human invests time, effort, skills and resources to create real, physical goods... and some scumbag bankster exchanges worthless fiat "credits" that cost him zero to create. That is fraud. That is theft. That is the road to total overt global slavery.

This means that while any government can declare something to be money, this only works as long as it fulfills the function of money: a medium of exchange.

Hence back in the good old days of communism in Eastern Europe, money was cartons of western cigarettes, since everyone was willing to do what you wanted them to do for that medium of exchange. Need your car repaired by the weekend? Pay the bill with worthless Zlotnys, but make sure the mechanic gets 2 cartons now and another 3 when the car is delivered on time; need medicine for your daughter for that operation? Not unless you've got 6 cartons or, even better, a case of cigarettes to make it worth someone's time to make sure that those medicines are anything more than distilled water. The corrosive discounting of official money in the command economies helped lead to their collapse, as scarcity was not one of price, but of availability. Unless, of course, you had something that worked better than the official paper money: cigarettes.

Gold has been and will be used as money, but there is nothing inherently valuable about gold (there are some commodity industrial uses, as well as the fact that it is used extensively in jewelry) in and of itself: the real reason gold is attractive is that all other monies are being so poorly managed.

If sheer rarity was the solution, then we'd base a currency on unobtainium.

It's all semantics. We are on a gold standard. It's a fractional reserve unredeamable gold standard but all currencies rank and measure themselves realtive to price of gold in that currency.

It's just semantics. You're not even taught what is the real system we use right now. Why would you expect to be taught how the new system works which what they have in mind is simply a more abstracted layer of the system we have now.

Gold shipments can be hijacked. It's best to leave it in a vault but they are all such thieves what they say they have is bullcrap. Buy gold and silver just to kill the present system. What is in everybodys best interest is use a pure scrip system with all the non cheating measures we can muster. NO electronic funds, no credit cards, non of the digital dollars which cant or never will be secured.

Gold meets all the requirements of money. It's abundant but not too abundant. It's beyond durable. The only real way to get rid of it permanently is to hook up a massive electrolisis machine and melt it into the oceans. But it doesn't meet the needs of being something that everyone needs and everyone has some access too. It's entirely monopolized by central banks.